3rd April 2020 - U.S. weekly jobless claims blow past 6 million, oil soars more than 20% on the day

OVERNIGHT HEADLINES AND DATA

U.S. weekly jobless claims blow past 6 million as coronavirus lockdowns spread - the number of Americans filing claims for unemployment benefits shot to a record high of more than 6 million last week as more jurisdictions enforced stay-at-home measures to curb the coronavirus pandemic, which economists say has pushed the economy into recession. Initial claims for state unemployment benefits surged 3.341 million to a seasonally adjusted 6.648 million for the week ended March 28, the government said. That was double the previous all-time high of 3.307 million set in the prior week. Economists polled by Reuters had forecast claims would jump to 3.50 million in the latest week, though estimates were as high as 5.25 million. The number of people on unemployment rolls shot up 1.245 million to 3.029 million in the week ended March 21, the highest since July 6, 2013.

The U.S. trade deficit dropped to near a 3-1/2-year low in February as the coronavirus pandemic pushed imports from China to their lowest level since 2009. The trade deficit fell 12.2% to $39.9 billion, the lowest level since September 2016. The percentage decline was the largest since March 2018. Data for January was revised slightly to show the trade gap tightening to $45.5 billion instead of $45.3 billion as previously reported. Economists polled by Reuters had forecast the trade gap would decrease to $40.0 billion in February. When adjusted for inflation, the goods trade deficit tumbled $9.0 billion to $69.0 billion in February. That was the lowest since February 2015.

Wall Street bounced as hopes of a truce between Saudi Arabia and Russia to cut oil output drove a record 22% surge in prices, outweighing the shock of over 6 million Americans filing for jobless claims due to virus-led lockdowns. Saudi Arabia has called for an emergency meeting of oil producers, while U.S. President Donald Trump said he expected the kingdom and Russia to cut output by as much as 10 million to 15 million barrels a day. Dow Jones was up 377.55 points, or 1.80%, at 21,321.06, the S&P 500 was up 49.73 points, or 2.01%, at 2,520.23 and the Nasdaq was up 112.09 points, or 1.52%, at 7,472.67.

CURRENCIES

The USD rose for a second straight day as investors continued to take shelter in the USD. The DXY index was up 0.8% at 100.40 from previous 99.70 lows.

GBP saw an early rally up to 1.2460 highs but also fell after the U.S. numbers to 1.2353 lows.

CNY fell to its lowest level in almost half a year - onshore CNY lost as much as 0.4% in early trade to 7.1283 per dollar, its weakest since early October, before crawling back to 7.1038 by midday.

AUD was hit by a fresh bout of market jitters, falling from 0.6114 high to 0.6010 low but managed a late rebound to 0.6047.

NZD found selling interest from 0.5970 to 0.5880, recovering back up towards 0.5910.

AUDNZD fell marginally from yesterday’s 1.0255 peak to end at 1.0230.

AUDEUR ended slightly higher at 0.5575 after previously jumping to a 0.5590 high and falling to a 0.5535 low.

TREASURIES

U.S. Treasury yields were little changed despite a record rise in jobless claims, as investors struggled with the unprecedented data.

The benchmark 10-year yield was down 2.4 basis points at 0.6111% in afternoon trading.

The two-year U.S. Treasury yield was down 1.4 basis points at 0.2196% in afternoon trading. It reached as low as 0.202% overnight, its lowest level since 2013.

Euro zone government bond yields rose as some investors moved back into riskier assets, with a rise in oil prices and fresh supply from France and Spain also adding to the upwards pressure. The 10-year German government bond yield rose 4 basis points to -0.426%, pulling away from the lows of -0.55% touched on Monday.

COMMODITIES

Gold prices jumped over 1%, as record high U.S. jobless claims for a second week in a row intensified fears of economic damage due to the coronavirus and drove investors towards the safe-haven metal. Spot gold gained 1.3% to $1,627 per ounce.

Steel futures in China closed higher after falling more than 3% in early trade on demand concerns due to the fast-spreading coronavirus pandemic. Spot price of benchmark iron ore with 62% iron content for delivery to China fell by $1 to $83.5 per tonne.

Aluminium fell for a fourth straight session as China factory activity showed minimal growth in March, adding to concerns about falling metals demand and a ballooning supply glut as the coronavirus outbreak spreads further. Benchmark LME aluminium was down 0.7% at $1,489 per tonne, after touching its lowest since March 2016 and one track for its eighth straight weekly loss.

LME copper was up 2% at $4,900 a tonne, nickel was up 0.4% at $11,310, zinc shed 0.8% to $1,884.50, lead dropped 1.3% to $1,696.50 while tin gained 0.2% to $14,375.

Crude prices posted their biggest-one day gains on record after President Donald Trump said he expects Russia and Saudi Arabia to announce a major oil production cut, and Saudi state media said the kingdom was calling an emergency meeting of producers to deal with the market turmoil. Trump said he had spoken to Saudi Crown Prince Mohammed bin Salman, and expects Saudi Arabia and Russia to cut oil output by as much as 10 million to 15 million barrels, as the two countries signalled willingness to make a deal. Brent futures rose $5.20, or 21.0%, to settle at $29.94 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $5.01, or 24.7%, to settle at $25.32.

ECONOMIC DATA TODAY

Australian Economic data today: February retail sales (last -0.3%, forecast +0.4%). Possibly the last positive reading for a while as sales take a turn in March 2020.

China - March Caixin China PMI services (last 26.5, forecast 39.5).

Europe - March Market services PMI (last 28.4, forecast 28.2)

US - March non farm payrolls (last 273k, forecast -61). March unemployment rate (last 3.5%, forecast 3.8%). March average hourly earnings (last 0.3%, forecast 0.2%). The deterioration in employment and rise in unemployment will be dramatic and, in time, will hit wage momentum as well.

AUD THOUGHTS AND TECHNICAL OUTLOOK

AUD took another back seat overnight as risk trades dived and safe-haven currencies were bought after US claims topped near 6.65 million\.

Investors ploughed into the safety of USD & JPY which saw AUD fall from just over 0.6100 down towards 0.6010 lows, eventually ending the NY session back up towards 0.6060.The news coming from President Trump which expected Russia & Saudi Arabia to cut oil production of 10mln barrels gave a late reprieve to risk rallies as stocks added to gains and commodity currencies rallied sharply (AUD spiking up towards near 0.6080 & AUD/JPY near 65.50.Today’s data sees the release of Australian February retail sales which saw a decline of –0.3% in Jan following a –0.7% fall in Dec and a 1.0% rise in Nov. The ABS has moved to releasing preliminary retail sales estimates as part of an effort to provide more timely information on the impacts of the coronavirus. Feb figures released last week showed a 0.4% rise for the month. This is based on responses covering 80% of total retail. We suspect they will be heavily skewed towards larger businesses such as supermarkets, which account for about 40% of total retail. Tonight’s headline event will be the March US employment report. Judging from the weekly jobless claims the coronavirus is set to result in a dramatic turn in the US labour market after a protracted period near 50-year lows for the unemployment rate. A 3.3 million increase last week and 6.648 million overnight in initial claims speeds the scale of the deterioration upon the US, particularly versus the prior peak of 695k in 1982. While most of the deterioration will be seen in the April employment report rather than March, this month is still likely to see a jolt higher in the unemployment rate to around 4.0%, depending on what happens to the participation rate.For the AUD, technicals continue to lean bearish as RSI’s imply downside momentum. Bulls need a break of 21-DMA, March 31 high, 61.8 Fib of 0.6685-0.5510. A break of those resistance gives them more control, 0.6315/30 then eyed.The 10-DMA and March 26 low (0.5870) are supports, stops likely sit below the daily low. If supports break support near 0.5955/60 eyed, 0.5770/80 then targeted.